Making Better Decisions
I thought this email was worth publishing. This email followed Henry's On the Couch session with Technical Analyst Regina Meani on Saturday:
EMAIL FROM A MEMBER – Over the years I have tried and tested just about every indicator that exists. I also try to keep things as simple as practicable, but still effective, so have narrowed it down to these technical charting indicators:
- Candlesticks…..sharpest tool in the shed…earliest clue/cue/alert/warning.
- EMAs….short, medium, longer term …the crossing of specific shorter term ones to identify the initial buy/sell signal.
- MACD…..timing as to when they converge and diverge.
- RSI….for oversold and overbought levels …can be used for buy and sell signals when crossing certain levels.
- Volume….liquidity, demand/supply, sudden big spikes, higher/lower volume, decreasing/increasing in line with the price.
- Trendlines, triangles, channels….particularly narrow ascending/descending channels….and the most potent of them all, the narrow horizontal channel which captures many sideways movements that many stocks go through and get stuck in, waiting for the breakout, up or down, to buy or sell, or watch, wait or avoid….it has saved me from wasting so much time in a stock (unproductive and an opportunity cost), getting the timing right to buy on the breakout and subsequent buy or sell signal, and helped with avoiding the pain of losing money.
Of course, what matters is firstly, understanding what the indicators mean, what they are saying to you and the pictures/patterns they form; then it’s how you interpret, apply and use them. As with most things that you want to do well at, it’s about the degree of: knowledge (what to do….study and learn), skill (how to do it….lots of practice and repetition), and attitude (having the right mindset, wanting to do it really well, being positive, analytical, open to continuous learning and improvement).
Have not found just one indicator that does it all, every time. That’s why it’s a combination of the various indicators above….and the alignment of those indicators at certain key points and levels that say to buy, sell, wait, watch, avoid. But that’s still not 100% certain, hence the crucial reason for having in place an exit strategy, with the sensible option being the use of a stop loss and trailing profit stop.
So, in order to increase the probability of success, technical analysis is at its best when used in combination/conjunction with the “external world/environment” and that’s, fundamental analysis, assessment of the narrative, awareness of crucial events, and being in touch with the “mood”, momentum and sentiment of the market. The aim is to narrow down the selection of WHAT stocks to best choose and consider placing in the watchlists for scanning and evaluating the right time to take action (buy, sell, wait, watch, avoid). And getting the timing right is best done through charting indicators and technical analysis, as to WHEN to buy and sell or watch and wait, or avoid.
As Marcus once said, (something like) we want to increase the probability of success, so why not make best use of the available tools at our disposal.
In addition to all that above, we (our mind, eyes, ears and gut feel) need to be constantly aware and in tune with what is happening around us, our inner world and the outer world. When some of our key goals and focus are specifically set on being a real success in the stock market, then our own Reticular Activating System (RAS) will automatically scan those important things/events around us that may greatly impact on the market and our stocks. It’s like the subconscious mind has a periscope that comes up looking for such events in accordance to your goals and priorities.
And that’s how the Marcus Today Team arrived at choosing that astonishing “right timing” to exit and then re-enter the market.
REPLY – Great description, spot on – using all tools, not wedding yourself to one technique (this is whether the “value” people get it wrong), and seeing the work you do as narrowing the probabilities in your favour, it’s the best you can do; there is no certainty.
The “RAS” – good idea to put a scientific spin on what I would otherwise refer to as “guts”. I think it’s the same with putting in golf. You can never know whether the line is right until it’s over and you can NEVER know how hard to hit a ball until it’s too late.
BUT, you can put an effort into practicising before you play, hitting putts before you start to assess the speed of the greens that day, then when you’re out there, researching the putt, walking around the putt, pacing the distance out, looking at the green and assessing the slope, and if you put enough data in there, in the end your RAS processes it and you hit the ball and it goes in, close or you get something fundamentally wrong that teaches you for next time.
But, more effort, more data collected, more awareness, your RAS (which you just have to trust), has more chance. Make no effort, collect no data, don’t practice and don’t bother learning, and it's all luck, might as well not bother playing.
I talked to the Team about it this morning. Do not undervalue the work you do every morning. We are building experience, routines; we are taking in a lot of data by looking at the charts, by reading, by researching. Whilst others lie in bed, what we are doing is narrowing the probability of delivering on our value, which is looking after Members, helping them make the right decisions that make them money and protect their money. It is all worth it.
But in the end, we just have to trust that our brains interpret all the data. And in doing so, make the right decisions.
Maybe that’s all Marcus Today is. A lot of data that feeds into all our “guts” and narrows the probability of getting it right and not getting it wrong. The decisions that come as a consequence of all the work, are going to be better for having done the work.
There is no certainty, but there are better decisions. Better putts.
Hopefully all the work we do helps you make those better decisions.